Synergy Income Fund delivers strong year-end performance underpinned by a high-growth retail portfolio

Posted On Thursday, 28 August 2014 09:36 Published by
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Synergy Income Fund today announced full year distribution growth of 5% for its A linked unitholders and 12% for its B linked unitholders for the year to 30 June 2014.

William Brooks

William Brooks, CEO of Synergy, attributes its strong positive performance to Synergy's unique market position as a pure retail fund with focused exposure to the high-growth lower LSM market, its acquisitions included for the full financial year and improved portfolio performance driven by its direct active management.

"We are pleased to announce another positive set of results, which continues our track record of delivering on our commitments and creating value for our investors," says Brooks. "Synergy's robust financial performance, supported by strong operational delivery, contributed positively to our sixth set of results as a listed company. As a specialised fund, we have strategically grown our focused portfolio of retail assets ten-fold over the past three years, from R240 million to R2,4 billion."

During the year, Synergy's combined market capitalisation grew by R52 million, to R1.313 billion.

Brooks notes that despite a continuing challenging operating environment during the year, Synergy grew revenue by 26% to R303 million and its distributable income increased by 9% to R102 million. Importantly, it achieved this growth while maintaining a low expense ratio of around 20%.

"We are still in an extremely tough macro-economic and social environment, which is characterised by subdued economic growth, rising inflation and interest rates, high unemployment, overly indebted consumers, labour unrest and increasing pressure on consumer spending," says Brooks. "But this is not a new phenomenon to us. We have faced these challenges for some time now and have built operational capabilities to deal with them to the extent that we can."

Brooks confirms that, against this backdrop, Synergy's B linked unit distributions for 2015 are expected to increase by approximately 6% compared to 2014, in line with the South African listed sector average. This assumes the prime interest rate increases by no more than 1% during its 2015 financial year, a stable macro-economic environment and no major corporate failures.

JSE-listed REIT (Real Estate Investment Trust) Synergy is a specialised retail property fund with a specific focus on medium-sized community and small regional shopping centres in high-growth rural and township nodes, targeting the high-growth mass consumer market in South Africa. Synergy was listed on the JSE in December 2011 with an initial portfolio of three small shopping centres. Today it owns 15 shopping centres in seven South African provinces, spanning some 200,000sqm.

Its rental reversions trended upwards by 4.5% and Synergy achieved a noteworthy tenant retention ratio of 71%. Its national tenant ratio has increased to 89% from 86% a year ago, indicating a further improvement in the quality of its rental income, with its largest tenants being the Spar Group, Massmart, Pepkor and Shoprite. From 1 July 2014, Synergy already extended its average lease expiry from 3.2 years to 3.5 years. It is also focused on utilities management to optimise recovery ratios.

Focusing on value enhancing redevelopments and upgrades to centres in its portfolio, Synergy upgraded Gugulethu Square, Highland Mews and Sediba Shopping Centre during the year.

Synergy's R10 million redevelopment of Ruimsig Shopping Centre in Roodepoort, Gauteng, is scheduled for completion next month, to strengthen the centre into a dominant convenience retail offering in the competitive Roodepoort node. It is also upgrading Phase 3 at Richdens Village Shopping Centre in Hillcrest, KwaZulu-Natal for completion in November 2014, to enhance the quality of its retail and offices.

Furthermore, Synergy recently acquired a strategic property adjacent to the Ermelo Game Shopping Centre in Mpumalanga. It also has a further R10 million of capital expenditure projects planned for 2015 aimed at improving quality, appeal and operational efficiencies across its portfolio.

Synergy's loan-to-value ratio was a conservative 37.6% at year end, down from 40.8% at the half year, with interest rates hedged on 51% of its total borrowings at a weighted average rate of 8.99%. Synergy's total weighted average cost of borrowings at 30 June 2014 was 8.48%.

"Synergy recently negotiated improved lending margins with current loan facility providers. As a consequence, the weighted average cost of borrowings reduced to 8.32% with a weighted average cost of fixed debt funding of 8.76% with effect from July 2014," says Brooks.

He adds: "We are confident that our differentiated positioning, investment focus and operational capabilities will drive future growth and further our track record of delivering investor value."

Last modified on Thursday, 28 August 2014 11:25

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